USPS Audit Report “Conflicts of Interest: Facility Leases and Contract Delivery Services (Report Number DA-AR-11-008)

Federal regulations and Postal Service policies seek to minimize conflicts of interest to ensure that every citizen can have confidence in the integrity of the federal government. Postal Service policies encourage employees to avoid creating the appearance that they are violating the law or ethical standards.

At the end of fiscal year 2010, the Postal Service leased over 24,000 properties that represent about $1 billion2Appendix A in annual rent. During the same period, the Postal Service also maintained 7,797 mail delivery service contracts with individuals at an annual value of $318,658,027.

Our audit determined the Postal Service entered into leases that resulted in financial conflicts.One-hundred seventy of the active properties were leased from current employees with an annual rent value of $490,375. Some pose risks of violations while others give the appearance of impropriety. We identified 1,202 of 24,582 total leased properties that were obtained from current or former Postal Service employees with an annual rent value of $8.2 million. Of these properties, 982 were active leases with an annual rent value of $5.4 million.

Similarly, the Postal Service entered into 78 of the 7,797 total CDS contracts (valued at $3,005,818 annually) with current or former employees that, in some cases, resulted in apparent violations of federal regulations and Postal Service policies. Others also give the appearance of impropriety.

Real Estate Leases – Conflicts of Interest

We randomly sampled 59 of the 1,202 leases that we associated with employees or their relatives. As presented in Table 1, we identified 11 (or 19 percent) with financial conflicts because they were owned by employees who have the authority to exert significant influence in the lease process. These employees consisted of postmasters and their reliefs. For eight of these 11 leases, we confirmed that employees did, in fact, exert significant influence during negotiations in their roles as postmasters.

For example, in one instance the Postal Service decided to move operations from the postmaster’s property due to the poor condition of the facility. The postmaster subsequently solicited community support to discourage the move but once unsuccessful, she was able to lease land for the new post office location. This instance, among others, are apparent violations of Title18 U.S.C. §208 because employees participated personally and substantially in the Postal Service’s decision to lease property they own and represent illegal actions that, in the absence of an approved waiver, are subject to criminal prosecution. We were unable to confirm apparent Section 208 violations for the remaining three leases because there was insufficient evidence in lease files to assess employee participation

In addition, we identified 27 (46 percent) leases that were not conflicts of interest per Postal Service or federal guidelines. However, they give the appearance of impropriety. These lease renewals include former employees who have insider knowledge into the Postal Service’s leasing practices, current employees not assigned to the leased location, and instances where the lessor was a permitted relative of a Postal Service employee. The remaining 21 leases were no longer conflicts of interest due to termination or ownership transfer to individuals other than Postal Service employees.

Apparent violations of Section 208 and federal ethics standards exist because Postal Service policy allows employees or their relatives to lease smaller properties to the Postal Service, self-disclosure of potential conflicts is ineffective, and the Postal Service does not match lessor information to payroll records. For example, in four of the 11 financial conflicts, the lessors did not disclose their relationships with the Postal Service as required.

As a result, we estimate that 119 of the 982 active leases (or 12 percent) are at risk for conflict and 103 of them (or 10 percent) are possible in violation of Section 208. Section 208 does provide exceptions that require obtaining a waiver from the Postal Service’s Designated Agency Ethics Official (DAEO). None of the lease files we reviewed that were subject to Section 208 violations contained a waiver. See Appendix B for our detailed analysis of this topic.

CDS – Conflicts of Interest

Of the 78 delivery contracts with potential conflicts, we confirmed that the Postal Service awarded 15 of 78 contracts (19 percent) valued at $591,210 to current employees.

In one instance a rural carrier associate was awarded a delivery service contract in July 2006 and remained an employee. The employee contractor did not disclose the Postal Service relationship as required. This instance, among others, are not violations of Section 208 because employees did not participate personally and substantially in the contracting decision from which they or their relative received a financial benefit. Rather, these contract awards are apparent violations of Title 18 U.S.C. §440 that prohibits Postal Service employees from entering into contracts for mail delivery and Postal Service policy that does not allow CDS contracting with current employees. Section 440 violations are also illegal actions subject to criminal prosecution.

In addition, we determined that 27 of 78 (35 percent) contracts were awarded to employees within days of separation from the Postal Service. Per discussion with Postal Service contracting personnel, employees were advised to resign before receipt of contract awards. Another 25 contracts (32 percent) were awarded to employees after 30 days of separation from the Postal Service. Although contracts with former employees are not violations of Postal Service or federal conflicts of interest guidelines, they do give the appearance of impropriety and may create the appearance that former employees violated Title 5 CFR.2635.703 by using their insider knowledge of the Postal Service to secure contract awards. This is particularly applicable to the 27 contracts negotiated during the employees’ tenures and awarded shortly after separation. The remaining 11 contracts were not financial conflicts due to contract termination or changes in contractors.

USPS OIG Report (PDF)